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wonderpup

Peak Bubble?

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One famous proposition put to investors in the 1700's south sea bubble was worded thus;

"a company for carrying out an undertaking of great advantage, but nobody to know what it is".

Who would be crazy enough to invest in something like this?

Ask Goldman Sachs;

Goldman Sachs has been marketing a new structure: a so-called Fixed Income Global Structured Covered Obligation that may come to market in September.

The deal is structured via a derivative, a total-return swap entered into by Goldman Sachs Mitsui Marine Derivative Products.

And investors won’t know what exactly is in the pool.

They will get a breakdown of the kinds of assets included, but not the exact composition. And what is in the structure can change. Crédit Agricole notes the pool could be predominantly residential-mortgage backed securities at one point, sovereign debt at another and corporate bonds at yet another.

http://libertyblitzkrieg.com/2014/08/11/the-credit-bubbles-final-frontier-meet-goldmans-fixed-income-global-structured-covered-obligation/

So a derivative black box that might contain almost anything? Surely this must represent some kind of final act in the financialization play? How desperate for yield would you have to be to sign up for something like this?

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Believe me, there is a whole cadre of investor for whom anything that Goldman's is doing is "fine by them" and they'll take a dozen.

These guys are 100% US government backed, too big to fail - too plugged in to lose a dime mate.

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They will get a breakdown of the kinds of assets included, but not the exact composition. And what is in the structure can change. Crédit Agricole notes the pool could be predominantly residential-mortgage backed securities at one point, sovereign debt at another and corporate bonds at yet another.

If the Greek experience is anything to go by then there's also a good chance that the pool could end up being mostly in ZATA bonds - zilch and thin air.

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One famous proposition put to investors in the 1700's south sea bubble was worded thus;

"a company for carrying out an undertaking of great advantage, but nobody to know what it is".

Who would be crazy enough to invest in something like this?

Ask Goldman Sachs;

"a company for carrying out an undertaking of great advantage, but nobody to know what it is".

On my life, I read this just 24 ago in a book, whilst researching for something else.

The boom, however, was hardly confined to the shares of one company. It was a broadly based rally across the whole of the English market, which had grown rapidly since 1688. Near the top, of course, the number of new issues peaked, with some so very frothy. One company was floated to carry on trade with Greenland. Another was "a company for carrying on an undertaking of great advantage, but nobody knows what it is." Deposits of two pounds each actually were subscribed for one thousand shares of this unspeakable enterprise in just five hours of one day. The promoter of the company decided not to press his luck and left the country that evening, money in hand.

The peak price of the boom were reached on August 1, 1720. Fifty-four days later, on September 23, 1720, shares of the South Sea Company, and with them the whole London stock market, collapsed. Although the Bank of England stepped in on the morning of the crash to back the bonds of the South Sea Company, the attempt was futile and the authorities bowed to the judgment of the market.

Edited by Venger

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Believe me, there is a whole cadre of investor for whom anything that Goldman's is doing is "fine by them" and they'll take a dozen.

These guys are 100% US government backed, too big to fail - too plugged in to lose a dime mate.

They do see to have a lot of ex-staff in high places...it's some coincidence !!!

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